Proceedings

IN THE MATTER OF THE SECURITIES ACT,
R.S.O. 1990, CHAPTER S.5, AS AMENDED (THE "OSA")

AND

IN THE MATTER OF THE SECURITIES ACT,
(S.A. 1981, CHAPTER S-6.1, AS AMENDED (THE "ASA")

AND

IN THE MATTER OF MACDONALD OIL EXPLORATION LTD.,
MACDONALD TRADING CORPORATION, RUSSELL MARTEL AND BRESEA RESOURCES LTD.

JOINT STATEMENT OF ALLEGATIONS OF STAFF OF THE ONTARIO SECURITIES COMMISSION AND THE ALBERTA SECURITIES COMMISSION

 

Staff of the Ontario Securities Commission (the "OSC") and the Alberta SecuritiesCommission (the "ASC") make the following allegations:

A.BACKGROUND

1. The respondent MacDonald Oil Exploration Ltd. ("MacDonald Oil") is a reporting issuer inOntario but not in Alberta. Its head office is located in Toronto and its common shares arequoted on The Canadian Dealing Network Inc. ("CDN").

2. The chief executive officer and chairman of the board of directors of MacDonald Oil is FrankSmeenk. Mr. Smeenk is also a director and principal shareholder of MacDonald TradingCorporation ("MacDonald Trading") and the chairman of the board of directors ofMacDonald Mines Exploration Ltd. ("MacDonald Mines").

3. Mario Miranda is the secretary and a director of MacDonald Oil, as well as the president ofMacDonald Mines.

4. Russell Martel is the former president of MacDonald Oil.

5. Bresea Resources Ltd. ("Bresea") is a reporting issuer in British Columbia and Quebec butis not a reporting issuer in Ontario or Alberta. Bresea's head office is located in Calgary.Prior to June 8, 1999, approximately 74% of the approximately 65.5 million issued andoutstanding Bresea Shares were held by residents of Ontario. Approximately 13% of theissued and outstanding Bresea Shares were held by residents of Alberta.

6. Pursuant to an order dated November 5, 1997, of the Alberta Court of Queen's Bench,PricewaterhouseCoopers Inc. ("PWC") was appointed as Interim Receiver and Manager ofBresea. Pursuant to this order, as subsequently amended by an order dated February 11,1998, PWC was authorized to, inter alia:

A. fully investigate the affairs of Bresea;

B. inquire into the nature, validity and amount of all claims and potential claims againstBresea; and

C. assess the nature, validity and value of any and all claims and potential claims Breseamight have against third parties, whether arising out of the fraud committed againstBre-X Minerals Ltd. ("Bre-X") or otherwise.

7. Bresea is subject to orders of the British Columbia Securities Commission (the "BCSC") andthe Commission des valeurs mobilières du Québec (the "CVMQ" and, collectively with theOSC, ASC and BCSC, the "Commissions") ceasing the trading in securities of Bresea due to,among other things, Bresea's failure to file audited financial statements for the year endedDecember 31, 1996 (collectively, the "Bresea Cease Trade Orders"). The most recent auditedfinancial statements prepared in respect of Bresea were for the 1995 fiscal year.

8. Thomas P. Devlin is the only officer of Bresea and serves as its general manager, secretaryand treasurer. Since November 1997, Mr. Devlin also has served as treasurer and secretaryof Bro-X Minerals Ltd. ("Bro-X").

9. Bresea owns approximately 22.7% of the common shares and 100% of the preferred sharesof Bro-X.

10. On September 11, 1998, MacDonald Oil and Bro-X Minerals Ltd. ("Bro-X") entered into aletter of intent regarding a merger of MacDonald Oil and Bro-X (the "Bro-X Letter ofIntent"). PWC objected to the proposed merger and the Bro-X Letter of Intent subsequentlywas cancelled.

11. On September 16, 1998, MacDonald Mines issued a news release stating that MacDonaldMines had made a proposal to PWC to make a share exchange take-over bid to the holdersof Bresea Shares (the "Bresea Shareholders"). The news release stated that, under theproposal, following all necessary regulatory and judicial approvals:

A. Bresea Shareholders would be offered the right to exchange some part of their BreseaShares in an amount to be determined by the court for "shares of an independentlyestablished and appropriately equivalent value in MacDonald"; and

B. the Bresea Shares tendered to MacDonald would then be purchased for cancellationby Bresea, leaving the balance of its assets available for "accretion or distribution toits [shareholders]".

12. MacDonald Mines' proposal to PWC expired on September 18. Following discussionsamong representatives of Bresea, PWC and MacDonald Mines, PWC advised the otherparties that the solvency tests in applicable corporate statutes precluded any transactioninvolving a redemption by Bresea of Bresea Shares.

13. Pursuant to a letter agreement dated May 6, 1999 (the "Equity Agreement"), MacDonald Oilretained Equity Transfer Services Inc. ("Equity") to act as depositary in respect ofMacDonald Oil's proposed offer (the "Offer") to purchase all of the Bresea Shares and astransfer agent in respect of the MacDonald Oil Convertible Preferred Shares (the "ConvertiblePreferred Shares") and MacDonald Oil E-Warrants (the "E-Warrants" and, collectively withthe Convertible Preferred Shares, the "Consideration") to be offered as consideration underthe proposed Offer.

14. The Equity Agreement, among other things, identified MacDonald Oil, Mr. Smeenk and Mr.Martel as the persons who could request, or designate someone who could request,information from Equity as to the number of Bresea Shares deposited to the proposed Offer.

15. Pursuant to an agreement (the "Bre-X Agreement") dated as of May 13, 1999 betweenDeloitte & Touche Inc. ("Deloitte"), the trustee in bankruptcy of Bre-X, and MacDonaldTrading, the parties agreed, subject to certain conditions, that Deloitte would sell andMacDonald Trading would buy, 8,000,000 Bresea Shares (representing approximately 12.2%of the outstanding Bresea Shares) for $2,000,000 (being $0.25 per Bresea Share) in cashpayable, except for a $50,000 deposit payable upon signing of the Bre-X Agreement, atclosing. The $50,000 deposit was paid by MacDonald Trading.

16. The closing of the Bre-X Agreement was scheduled to take place at 10:00 a.m. on thefifteenth day after court approval of Deloitte's sale of the Bresea Shares was approved, orsuch earlier or later date as the parties agreed to.

17. Court approval was obtained on May 26, 1999 and counsel for Deloitte advised MacDonaldTrading that it was prepared to close the transaction.

18. Pursuant to a letter dated May 31, 1999, MacDonald Oil applied to the BCSC and CVMQfor orders partially revoking the Bresea Cease Trade Orders to enable Bresea Shareholdersin British Columbia and Quebec to tender their Bresea Shares to the proposed Offer. Todate, no such relief has been granted.

B. THE OFFER

19. On June 8, 1999, MacDonald Oil commenced the Offer, which was scheduled to expire at5:00 p.m. (Toronto time) on Monday, July 12 (the "Expiry Time").

20. On the same day, the Offer, together with an associated take-over bid circular (the "Circular")and letter to Bresea Shareholders (the "Offer Letter" and, collectively with the Offer andCircular, the "Offer Documents"), were mailed to all Bresea Shareholders whose namesappeared on Bresea's share register, including Bresea Shareholders with registered addressesin British Columbia and Quebec. The Offer Documents stated that the Offer was being madeto all Bresea Shareholders, although they also indicated that Bresea Shareholders in BritishColumbia and Quebec would not be able to tender Bresea Shares to the Offer unless theBresea Cease Trade Orders were partially revoked.

21. The Offer Documents were filed with the OSC and ASC, but not the BCSC or CVMQ.

22. The Offer Documents disclosed, among other things, that MacDonald Oil intended to proposea combination of MacDonald Oil, MacDonald Mines and Bresea.

23. Some time after the Offer was commenced but before the Expiry Time, MacDonald Tradingdecided not to complete its acquisition of the Bresea Shares from Deloitte, as it hadcommitted to do under the Bre-X Agreement.

24. The Offer Documents identified Mr. Devlin as a person who could provide additional copiesof the Offer Documents and provide information about depositing Bresea Shares. In addition,the Offer Documents disclosed that:

A. Mr. Devlin intended to tender 100,000 Bresea Shares to the Offer; and

B. upon the election of MacDonald Oil's nominees as directors of Bresea, MacDonaldOil would continue to employ Mr. Devlin as an officer of Bresea and support hisnomination as a director of MacDonald Oil to represent the holders of the ConvertiblePreferred Shares.

25. In connection with its review of MacDonald Oil's application to lift the Bresea Cease TradeOrder in Quebec, staff of the CVMQ contacted staff of the OSC on or about June 25, 1999to express concern about the Offer for the reasons, among others, that:

A. Bresea did not have a board of directors and no directors' circular appeared to havebeen sent to Bresea Shareholders; and

B. the disclosure in the Offer Documents did not appear to comply with applicablesecurities legislation.

26. Shortly thereafter, staff of the Commissions contacted PWC and its counsel to express theirconcern that no one exercising the functions customarily exercised by a board of directors ofan offeree issuer existed to advise Bresea Shareholders about the Offer or make arecommendation about whether to accept or reject the Offer. Staff asked PWC whether itwould consider issuing a news release respecting the Offer.

27. On June 30, 1999, PWC issued a news release (the "June 30 Release") stating, among otherthings, that:

A. in its capacity as Interim Receiver and Manager, PWC was reviewing the proprietyof the Offer and would be preparing submissions to the Commissions; and

B. in its capacity as Interim Receiver and Manager, PWC did not believe that the Offerwas in the best interests of Bresea Shareholders and recommended that it be rejected.

28. On July 5, 1999, counsel for MacDonald Oil sent a letter to PWC stating, among other things,that:

A. in issuing the June 30 Release and requesting that the OSC and ASC cease-trade theBresea Shares, PWC had acted outside the scope of its mandate;

B. if PWC had assumed the duties of a board of directors, which the June 30 Releaseimplied, it had wilfully and wantonly failed to discharge these duties;

C. PWC should immediately withdraw the statements made in the June 30 Release;

D. if the Offer did not succeed, PWC would be held responsible for all damages flowingtherefrom due to the "various 'defence' activities" it had undertaken; and

E. MacDonald Oil estimated that its damages would exceed $50 million and it intended,should the occasion arise, to "institute suit" against PWC to recover such damages.

29. Pursuant to a letter dated July 5, 1999 to the Commissions with a copy to MacDonald Oil'scounsel, counsel for PWC made the following submissions, among others:

A. the Bresea Cease Trade Orders should not be lifted, corresponding orders should bemade by the OSC and ASC and all of the Commissions should make cease-tradeorders in respect of the Offer;

B. the court process relating to the receivership protected Bresea Shareholders;

C. the Offer Documents did not comply with applicable securities legislation; and

D. if the Offer proceeded, PWC would not be in a position to issue a directors' circular.

30. In a letter dated July 5, 1999 to staff of the OSC, counsel to MacDonald Oil stated, amongother things, that: "Any interference of the nature requested by the Receiver would be anabuse of the powers conferred on securities regulators and would be thoroughlyinappropriate."

31. On July 7, 1999, staff of the OSC sent a letter to MacDonald Oil's counsel and Mr. Smeenk:

A. stating that staff of the OSC had concerns about the Offer and were in the process ofreviewing the Offer Documents, as well as PWC's submissions that the Offer shouldbe cease-traded; and

B. requesting that they respond to PWC's submissions no later than noon on Friday, July9 and send copies of their response to staff of the Commissions and PWC's counsel.

32. On July 9, 1999, MacDonald Oil's counsel sent a letter to staff of the Commissions andPWC's counsel in which it responded to the submissions of PWC's counsel.

33. After reviewing the July 9 letter from MacDonald Oil's counsel, staff of the Commissionsparticipated in a conference call later on the same day with Mr. Smeenk and MacDonald Oil'scounsel. During that conference call, staff advised Mr. Smeenk and MacDonald Oil's counselthat staff believed that the Offer should not proceed to completion at the Expiry Time becauseBresea Shareholders did not have sufficient information to enable them to make an informeddecision about whether or not to accept the Offer. Staff indicated that their concerns arosebecause, among other things:

A. the disclosure in the Circular was deficient and did not comply with applicablesecurities legislation;

B. publicly available information about Bresea was out-of-date and incomplete;

C. no one exercising the functions customarily exercised by the board of directors ormanagement of an offeree issuer had disseminated advice to the Bresea Shareholdersin respect of the Offer or made a recommendation about whether or not to accept theOffer, as is contemplated by applicable securities legislation; and

D. since the BCSC and CVMQ did not intend to make orders partially revoking theBresea Cease Trade Orders prior to the Expiry Time, residents of British Columbiaand Quebec would not be able to participate in the Offer and, therefore, had beentreated unequally in a manner inconsistent with National Policy Statement 62-201 -Bids Made only in Certain Jurisdictions.

34. Staff of the Commissions drew the attention of MacDonald Oil's counsel and Mr. Smeenkto a significant number of apparent disclosure deficiencies in the Offer Documents that staffof the OSC had identified in its preliminary review. Staff then requested that MacDonald Oilconsider extending the Offer, or withdrawing the Offer and making another offer, so thatstaff's concerns could be addressed.

35. Later on the same day, MacDonald Oil's counsel advised staff of the OSC that MacDonaldOil intended to extend the time during which the Offer would be open for acceptance untilAugust 9, 1999. Also later on the same day, counsel for MacDonald Oil sent by facsimile tostaff of the Commissions a draft news release of MacDonald Oil indicating its intention toextend the expiry time of the Offer until August 9, 1999. The draft news release also stated:"In consultation with the [Commissions], MacDonald Oil has decided to extend the timeduring which the Offer is open to allow Bresea to disseminate more current financialinformation."

36. On July 12, 1999 at approximately 9:40 a.m. (Toronto time), MacDonald Oil's counsel sentby facsimile to staff of the OSC a letter dated July 11, 1999 (the "July 11 Letter") from Mr.Smeenk to MacDonald Oil's counsel instructing them not to issue the news release onMacDonald Oil's behalf and proposing that a news release containing, among other things,the following information be released later that day:

A. the Offer would expire at 5:00 p.m. (Toronto time) on Monday, July 12;

B. MacDonald Oil would file a new offer in Quebec and British Columbia in conjunctionwith a new application to remove the Bresea Cease Trade Orders in those twoprovinces; and

C. it was anticipated that the new offer for residents of Quebec and British Columbiawould be open until September 15, 1999.

37. The July 11 Letter also stated that the following information would be reflected inMacDonald Oil's new bid:

A. pro forma financial statements using more current Bresea information;

B. confirmation that the Bre-X Agreement was aborted;

C. more detail on the business and future plans of MacDonald Oil and MacDonaldMines;

D. a repetition of the Bro-X Letter of Intent and the events surrounding the letter'stermination;

E. information on communications between Messrs. Smeenk and Devlin since theirintroduction in July 1998;

F. reference to qualifying reports covering the MacDonald Mines properties;

G. reference to technical and qualifying reports covering the MacDonald Oil property;

H. information as to Mr. Smeenk's role as MacDonald Oil's promoter;

I. information as to how the bankruptcy of Bre-X and the Mareva injunctions precludeda tender to the Offer of Bresea Shares held by the former principal shareholders ofBresea and, accordingly, precluded a reverse take-over of MacDonald Oil;

J. an expanded risk description reflecting the going concern reservation of MacDonaldOil's auditors;

K. information on common and related parties among Bresea, MacDonald Oil andMacDonald Mines; and

L. an indication of the process determined by the BCSC and CVMQ for a managementresponse circular to the Offer.

38. The list of items that the July 11 Letter indicated would be addressed in the new bidencompassed, in part, the list of deficiencies with respect to the Offer and disclosure in theOffer Documents that staff of the Commissions had outlined to Mr. Smeenk and MacDonaldOil's counsel in the conference call on Friday, July 9.

39. At approximately 11:00 a.m. (Toronto time) on July 12, staff of the OSC advised MacDonaldOil's counsel that staff would be requesting a temporary cease trade order in respect of theOffer.

40. At approximately 11:20 a.m. (Toronto time) on the same day, Mr. Smeenk sent a letter (the"July 12 Letter") by facsimile to the attention of Richard Barnowski and Paul Jensen at Equitystating that: "This [letter] will be your good and sufficient authority to take up all Breseashares tendered to our offer, upon your receipt hereof, and from time to time thereafter asfurther tenders are received, until further instructions from us."

41. Beginning at approximately 3:00 p.m. (Toronto time) on the same day, a conference call washeld in which the OSC and ASC, staff of the OSC and ASC and representatives of, andcounsel to, MacDonald Oil, including Mr. Smeenk, participated. During the conference call,the OSC and ASC heard submissions made by staff of the OSC and ASC relating to staff'srequest that temporary or interim cease trade orders be made. Although the OSC and ASChad the jurisdiction to make temporary or interim orders without conducting a hearing, theOSC and ASC nevertheless provided counsel for and representatives of MacDonald Oil withan opportunity to comment upon staff's submissions during the conference call.

42. During the conference call, neither counsel for, nor representatives of, MacDonald Oil,advised the OSC or ASC that MacDonald Oil had already instructed Equity to take up theBresea Shares.

43. At approximately 4:25 p.m. (Toronto time) on the same day, staff of the OSC advised counselfor MacDonald Oil that the OSC and ASC had made temporary or interim orders (the"Temporary Orders") that all trading in Bresea Shares by MacDonald Oil and in theConsideration to be issued under the Offer cease for a period of fifteen days from the date ofthe Temporary Orders unless extended by orders of the OSC and ASC.

44. The Offer expired at 5:00 p.m. (Toronto time) on the same day.

45. Prior to the Expiry Time, 6,599,759 Bresea Shares represented by share certificates weretendered to Equity. Of these 6,599,759 Bresea Shares, 113,550 Bresea Shares were tenderedby ineligible holders (e.g., Bresea Shareholders with registered addresses in British Columbia,Quebec or the United States).

46. Prior to the Expiry Time, Notices of Guarantee representing 15,396,780 Bresea Shares weredelivered to Equity. Of these 15,396,780 Bresea Shares, Notices of Guarantee in respect of159,860 Bresea Shares were delivered to Equity by or on behalf of ineligible holders.

C. EVENTS SUBSEQUENT TO THE EXPIRY OF THE OFFER

47. At approximately 6:10 p.m. (Toronto time) on July 12, the ASC issued a news release onbehalf of itself and the OSC disclosing the terms of the Temporary Orders.

48. Later on the same day, MacDonald Oil issued a news release disclosing, inter alia, that:

A. the Offer had expired at the Expiry Time;

B. approximately 22 million Bresea Shares had been tendered to the Offer;

C. in conjunction with a new application to remove the Bresea Cease Trade Orders,MacDonald Oil intended to apply to the court under the Canada BusinessCorporations Act to extend its offer in British Columbia and Quebec;

D. the application also would seek court approval to expand MacDonald Oil's offer toBresea Shareholders whose Bresea Shares were subject to injunctions;

E. the new offer would allow British Columbia and Quebec residents to tender theirBresea Shares to MacDonald Oil on the same terms as the Offer;

F. it was anticipated that its new offer would remain open until September 15, 1999; and

G. MacDonald Oil had plans to take steps to extend its offer to U.S. residents.

49. In a letter dated July 15, 1999 (the "July 15 Letter") to Mr. Smeenk, a representative ofEquity stated, among other things, that:

A. Equity required a direction to submit the Bresea Shares to Montreal Trust Companyof Canada ("Montreal Trust"), Bresea's transfer agent, in order to transfer them intoMacDonald's name and that the direction would constitute MacDonald's acceptanceof such Bresea Shares under the Offer;

B. the Circular stated that payment for Bresea Shares would be made not later than threedays after taking up such Bresea Shares;

C. Equity was not in a position to issue the Convertible Preferred Shares because it didnot have a supply of blank preferred share certificates and, therefore "such directionshould not be made until the certificates are available"; and

D. in addition, Equity had Notices of Guarantee representing an aggregate of 15,236,920Bresea Shares.

50. In a telephone conversation on July 15, 1999, staff of the OSC advised MacDonald Oil'scounsel that the issuance of the Temporary Orders constituted a material change inMacDonald Oil's affairs since the Temporary Orders had the effect of precluding MacDonaldOil from taking up and paying for the Bresea Shares. Accordingly, MacDonald Oil had beenunder an obligation since the Temporary Orders were made on Monday to issue and file anews release disclosing the nature and substance of such change. MacDonald Oil's counseladvised staff of the OSC that MacDonald Oil had indicated that it had taken up and paid forthe Bresea Shares before the Temporary Orders were made.

51. Later on the same day, MacDonald Oil issued a news release stating, among other things,that, at about 4:25 p.m. on Monday, July 12, the OSC made the Temporary Order andMacDonald Oil had "taken up" approximately 22 million Bresea Shares prior to the issuanceof the Temporary Order. Consistent with the July 15 Letter, the news release did not referto MacDonald Oil having paid for such Bresea Shares.

52. In a letter dated July 15, 1999 to PWC, MacDonald Oil's counsel stated that, prior to theissuance of the Temporary Orders, MacDonald Oil took up and paid for approximately one-third of the outstanding Bresea Shares.

53. In telephone conversations on July 16, 1999, Paul Jensen and Tracey Pattison of Equityadvised staff of the OSC that:

A. they believed that Equity had not received any written confirmation from MacDonaldOil of its intention to take up Bresea Shares or written instructions with respectthereto;

B. Equity had not forwarded any Bresea Shares to Montreal Trust; and

C. Equity had not issued any MacDonald Oil securities as consideration under the Offer.

54. As noted in paragraph 40 of this Joint Statement of Allegations, however, it appears that, onJuly 12, 1999 at approximately 11:20 a.m., MacDonald Oil sent a letter by facsimile to Equitypurporting to authorize the take-up of Bresea Shares tendered, and to be tendered, to theOffer.

55. Pursuant to a letter dated July 19, 1999, staff of the OSC advised MacDonald Oil's counselthat, among other things:

A. based upon the information received to date, in staff's view, MacDonald Oil had failedto make timely disclosure of material changes in its affairs, namely that: (i) theTemporary Orders precluded it from completing the acquisition of the Bresea Sharesand fulfilling its obligations under securities legislation and the Offer to issue theConsideration; (ii) in any event, it had failed to pay for Bresea Shares purportedlytaken up pursuant to the Offer within the three-day period prescribed by applicablesecurities legislation; and (iii) it must return the Bresea Shares to Bresea Shareholders;and

B. in this context, it was essential that MacDonald Oil immediately effect publicdisclosure: (i) of the Temporary Orders' impact upon its ability to complete theacquisition of the Bresea Shares and fulfill its obligations under securities legislationand the Offer to pay for the Bresea Shares; and (ii) that it would be returning theBresea Shares to Bresea Shareholders forthwith.

56. Later on the same day, MacDonald Oil's counsel sent a letter to staff of the OSC that, amongother things, expressed disagreement with staff's view as to whether the Temporary Ordersprecluded MacDonald Oil from completing the acquisition of the Bresea Shares and, ifMacDonald Oil had taken up Bresea Shares, whether it was in breach of its obligation to payfor such securities.

57. Later on the same day, staff of the OSC sent a letter (the "Comment Letter") to MacDonaldOil's counsel and Mr. Smeenk in which staff, among other things:

A. stated that staff of the OSC and ASC continued to have concerns that the Offer didnot comply with applicable securities laws and was prejudicial to the public interest;

B. stated that this concern arose in the context of the disclosure in the Offer Documentsissued by MacDonald Oil in connection with Offer, the absence of a mechanism toensure that Bresea Shareholders had sufficient information about Bresea and thefairness of the Offer to make an informed decision about whether to tender to theOffer and the conduct of MacDonald Oil and persons who appeared to be connectedto MacDonald Oil;

C. stated that unless those concerns could be addressed before 10:00 a.m. on July 22,1999, staff intended to issue a notice of hearing pursuant to which it would requestthat the OSC and the ASC make additional orders to address those deficiencies;

D. identified a number of areas in which the disclosure in the materials that MacDonaldOil had sent to Bresea Shareholders appeared to be inconsistent with the requirementsof applicable securities laws; and

E. identified certain conduct in relation to the Offer that, in staff's view, did not appearto be consistent with applicable securities laws or the public interest.

58. On the same day, MacDonald Oil sent a letter, entitled "Direction to Transfer BreseaCommon Shares to MacDonald Oil, etc." (the "Direction") to Paul Jensen at Equity statingthat Equity was authorized to deliver the Bresea Shares to Montreal Trust in one or more lotsfor transfer to, and registration in the names of, MacDonald Oil or nominees as follows:

A. 1,000 Bresea Shares to Mr. Smeenk, care of MacDonald Oil;

B. 1,000 Bresea Shares to Mr. Miranda, care of MacDonald Oil;

C. 1,000 Bresea Shares to Mr. Martel, care of MacDonald Oil; and

D. the balance of the Bresea Shares to MacDonald Oil.

59. The Direction did not make any reference to the Temporary Orders or indicate that theDirection was not intended to have effect immediately.

60. In a letter dated July 20, 1999 to counsel for PWC, MacDonald Oil's counsel stated, amongother things, that it had taken up in excess of 18 million Bresea Shares.

61. On July 21, 1999, PWC sought advice and direction from the Alberta Court of Queen'sBench as to, among other things, how PWC should respond to the Offer and any subsequentoffer that might be made for the Bresea Shares. On the same day, the court made an order(the "July 21 Order") that PWC was authorized to:

A. appoint certain individuals to a shareholders' advisory committee (the "Committee");

B. consult with the Committee; and

C. thereafter respond to the Offer as any prudent management would do.

62. The July 21 Order specified that the Committee's terms of reference included, among otherthings, providing guidance to PWC in the event of a take-over bid for Bresea Shares or anyother corporate transaction.

63. On July 22, 1999, MacDonald Oil's counsel sent a letter to staff of the OSC and ASC statingthat MacDonald Oil had taken up 18 million Bresea Shares and requesting on MacDonaldOil's behalf an exemption, pending the outcome of the proposed hearing relating to theTemporary Orders, from the obligation in the OSA and ASA to pay for Bresea SharesMacDonald Oil had purportedly taken up under the Offer.

64. After receiving guidance from the Committee and with its agreement, PWC's counsel appliedto the OSC and ASC on July 22, 1999 for:

A. an order permanently ceasing the trading in Bresea Shares by MacDonald Oil and inthe Consideration to have been issued under the Offer;

B. to the extent necessary, an order requiring MacDonald Oil to return any BreseaShares tendered to the Offer to the Bresea Shareholders; and

C. an order ceasing the trading in Bresea Shares until December 31, 1999.

65. On July 23, 1999, the OSC and ASC issued orders extending and varying the TemporaryOrders.

66.Subparagraph 4(iii) of section 95 of the OSA and subsection 135(e)(iii) of the ASA providethat offeree securityholders are entitled to withdraw securities tendered to a take-over bid ifthe offeror has not taken up and paid for the tendered shares within 45 days after the bid wasmade. Effective at 12:01 a.m. on Saturday, July 24, Bresea Shareholders who tenderedBresea Shares to the Offer became entitled to withdraw such tendered securities.

67. On July 27, 1999, counsel to MacDonald Oil sent a letter (the "July 27 Letter) to staff of theCommissions responding to the Comment Letter. The July 27 Letter stated, among otherthings, that MacDonald Oil:

A. believes that "it may well be entitled" to take up the approximately 4,000,000 BreseaShares delivered to Equity after the Temporary Orders were issued; and

B. views the Temporary Orders that have been issued as illegal.

D. DISCLOSURE PROBLEMS RELATING TO THE OFFER

No One Exercising the Functions of Directors or Management Provided Disclosure or Advised Shareholders about the Merits of the Offer

68. MacDonald Oil acted contrary to the public interest in purporting to take up Bresea Sharesunder its Offer in circumstances where Bresea Shareholders were unable to make an informeddecision about whether or not to accept the Offer since, among other things, no oneexercising the functions customarily exercised by the directors or management of an offereehad provided Bresea Shareholders with a directors' circular or advised the BreseaShareholders about the fairness of the Offer.

Pro Forma Disclosure

69. The pro forma financial statements in the Offer Documents required by item 15 of Form 32under the OSA ("Ontario Form 32") and item 15 of Form 31 under the ASA ("Alberta Form31") were deficient because:

A. they were not based upon audited financial statements of Bresea for its most recentfiscal year; and

B. they did not disclose basic and fully diluted earnings per share in respect of thecombined business of MacDonald Oil and Bresea.

70. If meaningful pro forma disclosure could not be prepared because Bresea did not have currentaudited financial information, MacDonald Oil should have requested that the OSC and ASCgrant it exemptive relief. By proceeding with the Offer without seeking such exemptive relief,MacDonald Oil acted in contravention of applicable securities legislation.

Withdrawal Rights

71. Section 95 of the OSA and section 135 of the ASA provide that offeree securityholders maywithdraw securities tendered to a take-over bid at any time before the expiration of 21 daysfrom the date of the bid. Item 9 of each of Ontario Form 32 and Alberta Form 31 requiresa description of these withdrawal rights. The Offer Documents incorrectly stated that tendersof Bresea Shares would be irrevocable after June 15, 1999.

Business and Property of MacDonald Oil

72. Contrary to item 15 of Ontario Form 32 and item 9 of Form 14 under the OSA ("OntarioForm 14") and item 15 of Alberta Form 31 and item 9 of Form 14 under the ASA ("AlbertaForm 14"), the Offer Documents did not contain prospectus-level disclosure aboutMacDonald Oil's business and properties.

Risk Factor Disclosure

73. Pursuant to item 10 of each of Ontario Form 14 and Alberta Form 14, MacDonald Oil shouldhave provided risk factor disclosure in respect of the following matters:

A. the detailed disclosure contained in the going-concern note to MacDonald Oil'sfinancial statements;

B. as to the expenses MacDonald Oil would incur in connection with the Offer, thelikelihood that it would not be able to pay those costs and the impact such a failureto pay would have upon its continued operations;

C. the absence of any assurance that CDN would provide a quotation either for theConvertible Preferred Shares or the E-Warrants;

D. the liquidity risks a holder of such securities would be exposed to if no quotation wasobtained;

E. the liquidity risks persons who acquired MacDonald Oil common shares upon theconversion of the Convertible Preferred Shares or exercise of the E-Warrants wouldbe exposed to, given the low trading volume and price of the MacDonald Oil commonshares;

F. the liquidity risks Alberta residents would be exposed to in respect of MacDonald Oilcommon shares issued upon conversion of the Convertible Preferred Shares orexercise of the E-Warrants as a result of the hold periods imposed by Albertasecurities legislation upon such securities;

G. as to the likelihood that MacDonald Oil would not be able to have PWC dischargedor settle the outstanding claims in a manner beneficial to Bresea and as to the impactsuch failures would have on MacDonald Oil and its shareholders;

H. since MacDonald Oil was proposing to merge with MacDonald Mines and Breseawith a view to further investment in Cuba, a risk factor as to the previous experienceof MacDonald Oil, MacDonald Mines and their management with respect toexploration and production;

I. any existing and possible claims that could be made in respect of Block 22 or anyother property or concession in Cuba in which MacDonald Oil has an interest;

J. the possible impact of recent adverse developments in Canada-Cuba relations uponMacDonald Oil's affairs; and

K. as to the amount MacDonald Oil was required to spend prior to October 1999 tofulfill its exploration obligations and any risks that it would not be able to raise suchfunds.

Promoters

74. Pursuant to item 15 of each of Ontario Form 14 and Alberta Form 14, MacDonald Oil wasrequired to disclose, among other things:

A. the names of anyone who had been a promoter of MacDonald Oil within the five yearperiod preceding the Offer;

B. the nature and amount of anything of value received or to be received by anypromoter from MacDonald Oil and the nature and amount of any assets, services orother consideration received by MacDonald Oil; and

C. with respect to any assets acquired within the past two years or to be acquired fromany promoter, disclosure of the principles involved in determining the amount atwhich the asset was or is to be acquired, the identity of the person making thedetermination and his relationship to the issuer and the promoter.

75. In the July 11 Letter, Mr. Smeenk acknowledged that he was a promoter with respect toMacDonald Oil. Contrary to applicable securities legislation, the Offer Documents did notcontain the prescribed disclosure relating to Mr. Smeenk.

76. In the Comment Letter, staff of the OSC and ASC requested that MacDonald Oil explain andsubstantiate its view that Messrs. Smeenk, Miranda, Allen and Martel, among others, werenot promoters. The July 27 Letter did not provide the requested explanation.

Prior Sales of MacDonald Oil Securities

77. Contrary to item 28 of each of Ontario Form 14 and Alberta Form 14, the Offer Documentsdid not contain the prescribed disclosure relating to prior sales because, among other things,the Offer Documents do not disclose individual sales of MacDonald Oil securities in thetwelve months preceding the Offer to named insiders, their associates and employees ofMacDonald Oil.

Interest of Management and Others in Material Transactions

78. Contrary to item 29 of each of Ontario Form 14 and Alberta Form 14, the Offer Documentsdid not provide sufficient disclosure relating to the interests of MacDonald Oil's directors,officers, principal shareholders, affiliates and associates in transactions or proposedtransactions that have materially affected, or will materially affect, MacDonald Oil.

Material Contracts Entered into by MacDonald Oil

79. Contrary to item 33 of each of Ontario Form 14 and item 31 of Alberta Form 14, the OfferDocuments did not provide sufficient disclosure relating to material contracts.

Past and Proposed Material Changes in Bresea's Affairs

80. Contrary to item 13 of each of Ontario Form 32 and Alberta Form 31, the Offer Documentsdid not contain sufficient disclosure of the particulars of any information known toMacDonald Oil indicating a material change in Bresea's affairs since the date of its lastpublished interim or annual financial statements. The disclosure was deficient because, amongother things, the Offer Documents did not disclose recent developments in the litigationrelating to Bresea that had been publicly reported before MacDonald Oil commenced theOffer.

81. Contrary to item 18 of each of Ontario Form 32 and Alberta Form 31, the Offer Documentsdid not provide sufficient disclosure relating to MacDonald Oil's plans or proposals formaterial changes in Bresea's affairs.

Failure to Disclose Information Reasonably Expected to Affect Decision Whether to Accept or Reject the Offer

82. Item 19 of each of Ontario Form 32 and Alberta Form 31 require disclosure of any othermatter not disclosed in the foregoing that has not previously been generally disclosed and isknown to the offeror but which would reasonably be expected to affect the decision of thesecurity holders of the offeree issuer to accept or reject the offer. The Offer Documents didnot satisfy these disclosure requirements for the following reasons, among others:

A. The Offer Documents indicated that MacDonald Oil would pay the costs of the Offer,including an estimated $180,000 in out-of-pocket expenses and as much as $1.3million in respect of solicitation fees. In light of MacDonald Oil's very limitedfinancial resources, disclosure of the source of funds enabling MacDonald Oil to payfor the expenses of the Offer should have been provided to Bresea Shareholders.

B. The disclosure in the Offer Documents that MacDonald Oil intended to obtain aquotation on CDN for the Consideration was misleading, in the absence of cautionarylanguage as to the risk that such a quotation would not be obtained and the impactsuch a failure would have on the value of the Consideration.

C. The Offer Documents should have contained cautionary language with respect toMacDonald Oil's dividend history, as well as the restrictions imposed by and likelyapplication of the solvency tests in the Business Corporations Act (Ontario) (the"OBCA") upon MacDonald Oil's ability to pay dividends in respect of the ConvertiblePreferred Shares.

D. The Offer Documents should have contained cautionary language with respect to therestrictions imposed by and likely application of the OBCA's solvency tests uponMacDonald Oil's ability to repurchase the Convertible Preferred Shares, including asto the impact these solvency tests would have on MacDonald Oil's ability to set asidea "purchase fund" to "secure" the Convertible Preferred Shares.

E. MacDonald Oil's expressed intention to use the proceeds of sale of Bresea Shares tofinance a purchase fund for the Convertible Preferred Shares was inconsistent with itsexpressed intention to effect a merger of Bresea, MacDonald Oil and MacDonaldMines.

F. In light of MacDonald Oil's intention to retain Mr. Devlin as an employee of Breseaand nominate him for election as a director of MacDonald Oil to represent theinterests of the holders of the Convertible Preferred Shares, there should have beendisclosure in the Offer Documents of Mr. Devlin's business experience comparableto that provided for Messrs. Smeenk, McLaren and Sanderson.

G. More detailed disclosure regarding MacDonald Oil's principal asset, Block 22, shouldhave been provided, including information as to:

I. Block 22's past ownership before the present Cuban government came topower, whether the former owner or owners had asserted any claim in respectof the property or for compensation and, if so, what the status of any suchclaims were;

II. recovery and carry-forward of expenses and net income, payment of incometaxes and bonuses to Cubapetroleo, Cuba's state petroleum company;

III. exploration and development plans, including a budget and MacDonald Oil'sshare of the budget for the second and third sub-periods; and

IV. whether MacDonald Oil was up-to-date with respect to its spendingobligations for Block 22 and how it intended to fund its obligations relatingto the drilling of the exploratory well on Block 22 by September 30, 1999.

H. The Offer Documents provided insufficient disclosure about the background to theOffer, e.g., the particulars of any communications and correspondence between anyof the Respondents, related parties of MacDonald Oil or the representatives or agentsof any of the foregoing persons or companies, on the one hand, and Bresea, Mr.Devlin, PWC or their respective representatives or agents, on the other.

83. If, upon the conversion or exercise of the MacDonald Oil securities issued under the Offer,former Bresea Shareholders would have held more than 50% of MacDonald Oil's commonshares, a reverse take-over would have occurred. There were approximately 23.4 millionMacDonald Oil common shares outstanding on June 8, 1999. If the 22 million Bresea Sharesthat were tendered to the Offer had been exchanged for 22 million Convertible PreferredShares and 22 million E-Warrants under the Offer and 30% of the former BreseaShareholders subsequently exercised the associated conversion or exercise privileges attachedto those securities, the Offer would have resulted in a reverse take-over of MacDonald Oil.

84. If a transaction results in a reverse take-over for accounting purposes, the critical disclosurefor shareholders of the continuing company going forward is the disclosure relating to thecompany that has, in effect, acquired the other company. Since Bresea had been cease-tradedin the only Canadian jurisdictions in which it was a reporting issuer for failure to file auditedannual financial statements and there was limited disclosure about Bresea available fordissemination to the public, a reverse take-over by Bresea of MacDonald Oil would haveraised significant securities regulatory concerns about MacDonald Oil's disclosure recordsince, on a going-forward basis, the critical disclosure would have related to Bresea.

85. Given the strong possibility that the Offer would have resulted in a reverse take-over ofMacDonald Oil:

A. it was contrary to the public interest for MacDonald Oil to proceed with the Offerwithout addressing the regulatory concerns associated with the impact on MacDonaldOil of a reverse take-over; and

B. at the very least, there should have been disclosure of this possibility and as to theimpact of the reverse take-over upon the financial statements included in the OfferDocuments.

Arrangements between MacDonald Oil and Mr. Devlin

86. Contrary to items 6 and 12 of each of Ontario Form 32 and Alberta Form 31, the OfferDocuments did not provide sufficient disclosure regarding:

A. the terms and conditions of MacDonald Oil's commitment to acquire Mr. Devlin'sBresea Shares; or

B. MacDonald Oil's agreement, arrangement or understanding with Mr. Devlin regardinghis continued employment at Bresea and his future appointment to MacDonald Oil'sboard of directors.

87. Applicable securities legislation and OSC Policy 9.1 provide for enhanced disclosure toofferee shareholders in connection with an "insider bid". Among other things, a formalvaluation of the offeree prepared by an independent valuator is required, unless an exemptionis obtained. One of the primary purposes of these enhanced disclosure requirements is tomitigate the informational advantage an insider may have as a result of its access to non-publicinformation about the offeree issuer, such as forecasts, operating budgets and priorvaluations.

88. As Bresea's general manager, secretary and treasurer Mr. Devlin is a senior officer of Breseawithin the meaning of subsection 1(1) of the OSA and subsection 1(w) of the ASA.

89. Mr. Devlin's past and present involvement with MacDonald Oil and its principals raisesconcerns that: (i) MacDonald Oil had, through Mr. Devlin, access to non-public informationabout Bresea; and (ii) this information was not disclosed in the Offer Documents. In theComment Letter, staff of the OSC and ASC requested that MacDonald Oil disclose Mr.Devlin's past and present contacts with the Respondents. The July 27 Letter did not providethe requested information.

MacDonald Oil Financial Statements

90. Contrary to subsection 2(5) and section 196 of the Regulation under the OSA and section 85and subsection 144(5) of the rules made under the ASA, MacDonald Oil failed to provide thecorresponding audit reports and consent letters for the financial statements of MacDonald Oilfor the periods ending August 31, 1998, 1997, 1996 and 1995 incorporated by reference intothe Circular. Since the Bresea Shareholders were not provided with these audit reports, theywere not able to determine whether or not MacDonald Oil had received "clean" audit reportsfor the past five years, nor was it brought to their attention that MacDonald Oil had changedits auditors during this period.

Certificate

91. The Offer Documents did not comply with item 24 of Ontario Form 32 and Item 24 ofAlberta Form 31 because the same two individuals who, in their capacity as officers ofMacDonald Oil, signed the certificate relating to the accuracy and completeness of thedisclosure, also signed the certificate in their capacity as directors. Mr. Kent, who isMacDonald Oil's only non-officer director and a member of its audit committee, did not signthe certificate.

E. IMPROPER CONDUCT RELATING TO THE OFFER

Pre-Bid Integration

92. Subsection 94(5) of the OSA and subsection 134.1(2) of the ASA provide that, where a take-over bid that is a formal bid is made by an offeror and, within the ninety day periodimmediately preceding the bid, the offeror acquired beneficial ownership of any securities ofthe class subject to the bid pursuant to a transaction not generally available upon identicalterms to holders of that class of securities, the offeror must, among other things, offerconsideration for securities deposited under the bid at least equal to the highest considerationpaid on a per security basis under any such prior transaction or offer at least the cashequivalent of such consideration.

93. The term "offeror", for purposes of subsection 94(5) of the OSA and subsection 134.1 of theASA, includes any person acting jointly or in concert with the offeror.

94. MacDonald Trading was acting jointly or in concert with MacDonald Oil in connection withthe Offer.

95. For purposes of Part XX of the OSA and Part 13 of the ASA, a person, company or offeroris deemed to have acquired and be the beneficial owner of a security if, among other things,the person, company or offeror has the right or obligation, whether or not on conditions, toacquire within sixty days beneficial ownership of the security, whether through the exerciseof an option, warrant, right, subscription privilege or otherwise.

96. MacDonald Trading became the beneficial owner of 8,000,000 Bresea Shares no later thanMay 26, 1999, the date the court approved the Bre-X Agreement.

97. MacDonald Oil acted contrary to the public interest in commencing a formal take-over bidthat provided for unequal consideration since:

A. in the ninety days preceding the commencement of the Offer, MacDonald Trading hadacquired beneficial ownership of Bresea Shares pursuant to a transaction that was notgenerally available to other Bresea Shareholders upon identical terms; and

B. notwithstanding that MacDonald Oil subsequently determined not to complete theacquisition of Bresea Shares pursuant to the Bre-X Agreement and therebyrelinquished any ownership interest it may have had in such securities, at the time theOffer was commenced, MacDonald Trading was the beneficial owner of such BreseaShares.

Collateral Benefits

98. MacDonald Oil entered into a collateral agreement, commitment or understanding with Mr.Devlin that may have had the effect of providing Mr. Devlin a consideration of greater valuethan that offered to other Bresea Shareholders, contrary to section 97 of the OSA and section136 of the ASA.

Unequal Treatment of Bresea Shareholders

99. MacDonald Oil acted contrary to the public interest in purporting to take up Bresea Sharesfrom eligible holders and proposing to allow the Offer to expire at the Expiry Time incircumstances where Bresea Shareholders in British Columbia and Quebec were unable toparticipate in the Offer.

100. MacDonald Oil and Mr. Smeenk acted contrary to the public interest in purporting toauthorize Equity to take up Bresea Shares tendered, and to be tendered, to the Offer incircumstances where:

A. Bresea Shareholders who were eligible to tender Bresea Shares (e.g., Ontario andAlberta residents) did not have sufficient information to make an informed decisionabout whether or not to accept the Offer; and

B. MacDonald Oil and Mr. Smeenk intended to make a follow-up offer to BritishColumbia and Quebec residents and use offer documents that contained enhanceddisclosure that addressed certain concerns previously raised by staff of theCommissions.

Failure to File Offer Documents with the BCSC and CVMQ

101. Although the Offer was made in British Columbia and Quebec, the Offer Documents were notfiled with the BCSC or CVMQ, contrary to applicable securities legislation in BritishColumbia and Quebec.

Failure to Comply with Early Warning Regime in British Columbia and Quebec

102. For take-over bid purposes, applicable securities legislation in British Columbia and Quebecdeems a person to be the beneficial owner of securities if that person has a right, whether ornot on conditions, to acquire the securities within sixty days. MacDonald Trading obtainedbeneficial ownership of 8,000,000 Bresea Shares representing 10% or more of the issued andoutstanding Bresea Shares no later than May 26, 1999, although it may have subsequentlyceased to be the beneficial owner of such Bresea Shares when it failed to pay for suchsecurities at the scheduled closing.

103. Pursuant to applicable securities legislation in British Columbia and Quebec, upon acquiringbeneficial ownership of the Bresea Shares, MacDonald Trading was required to issue and filea news release containing prescribed information and, within two business days, file a reportcontaining the same information (an "Early Warning Report") with the BCSC and CVMQ.

104. Contrary to applicable securities legislation in British Columbia and Quebec, MacDonaldTrading did not issue and file the prescribed news release or file an Early Warning Report inrespect of its acquisition of beneficial ownership of the Bresea Shares.

105. Applicable securities legislation in British Columbia and Quebec prohibits anyone to whomthe disclosure obligations described in paragraph 103 of this Joint Statement of Allegationsapply and anyone acting jointly or in concert with such a person from acquiring, or offeringto acquire, securities of the class to which such disclosure obligations relate until one day haselapsed from the date the prescribed Early Warning Report is filed.

106. MacDonald Trading was acting jointly or in concert with MacDonald Oil. Therefore,MacDonald Oil breached the applicable securities legislation in British Columbia and Quebecby making the Offer in those provinces in circumstances where MacDonald Trading had failedto file the prescribed Early Warning Reports.

F. IMPROPER CONDUCT SUBSEQUENT TO THE EXPIRY OF THE OFFER

Inadequate Disclosure

107. Notwithstanding that the issuance of the Temporary Orders constituted a material change inMacDonald Oil's affairs, MacDonald Oil failed to issue and file forthwith a news releasedisclosing the nature and substance of such change, contrary to section 75 of the OSA andsection 118 of the ASA.

108. Notwithstanding that the issuance of the Temporary Orders resulted in a change in theinformation contained in the Circular that would reasonably be expected to affect the decisionof Bresea Shareholders to accept or reject the Offer and a change in a material fact relatingto the Consideration, which change occurred before the expiry of the Offer, MacDonald Oilfailed to send a notice of such change to Bresea Shareholders whose Bresea Shares had notbeen taken up yet, contrary to section 98 of the OSA and section 137 of the ASA.

Take-up of and Payment for Bresea Shares

109. The July 12 Letter was not sufficient to effect take-up, within the meaning of the applicablesecurities legislation, either of the Bresea Shares represented by share certificates tenderedto Equity prior to the Expiry Time or the Bresea Shares represented by Notices of Guaranteedelivered to Equity prior to the Expiry Time.

110. In the alternative, if the July 12 Letter was sufficient to effect take-up of any the BreseaShares referred to in paragraphs 45 and/or 46 of this Joint Statement of Allegations, thenMacdonald Oil was obliged under paragraph 10 of section 95 of the OSA and subsection135(l) of the ASA to pay for such Bresea Shares within three days of take-up. If MacDonaldOil took up Bresea Shares on July 12, its failure to pay for such securities no later thanmidnight on July 15, 1999 contravened applicable securities legislation.

111. In the further alternative, if the July 12 Letter was sufficient to effect take-up of any of theBresea Shares, MacDonald Oil acted contrary to the public interest in taking up securities incircumstances where it knew that, if the Temporary Orders were made, MacDonald Oil wouldnot be able to pay for the Bresea Shares it had taken up within the time periods prescribed byapplicable securities legislation and provided for in the Offer Documents.

112. In the further alternative, if the July 12 Letter was sufficient to effect take-up of any of theBresea Shares, then MacDonald Oil contravened applicable securities legislation in BritishColumbia and Quebec to the extent any of the tendered Bresea Shares were tendered byBresea Shareholders resident in either of those provinces since the take-up of such BreseaShares constituted an act in furtherance of a trade in Bresea Shares subject to the BreseaCease Trade Orders.

Contravention of the Temporary Orders

113. The Direction constituted a breach of the Temporary Orders and, consequently, a violationof applicable securities legislation since, among other things, it constituted an act infurtherance of a trade in the Bresea Shares to MacDonald Oil and an act in furtherance of atrade in Bresea Shares to Messrs. Smeenk, Miranda and Martel.

114. Messrs. Smeenk and Miranda, who are directors and/or officers of MacDonald Oil, violatedapplicable securities legislation and acted contrary to the public interest by authorizing,permitting or acquiescing in MacDonald Oil's breach of the Temporary Orders.

115. Mr. Martel acted contrary to the public interest by aiding and abetting MacDonald Oil'sbreach of the Orders.

Illegal Distribution from a Control Block

116. Section 53 of the OSA and section 81 of the ASA prohibit any trade in a security if such tradewould be a distribution of such security unless the prospectus requirements in the OSA andthe ASA have been satisfied or an exemption is available.

117. Under the OSA and ASA, a trade in previously issued securities of an issuer from the holdingsof a person or company, or combination of persons or companies, holding a sufficient numberof securities of the issuer to affect materially its control is a distribution.

118. If MacDonald Oil acquired an ownership interest in the Bresea Shares tendered to the Offerprior to the Expiry Time, then the Direction constituted a distribution in Bresea Sharescontrary to subsection 53(1) of the OSA and subsection 81(1) of the ASA because it was anact in furtherance of a trade in Bresea Shares by a company that held sufficient securities ofMacDonald Oil to affect materially its control.

Failure to Return Tendered Bresea Shares, as Required under the Offer or Disclose That the Offer's Terms and Conditions Had Been Complied With or Waived

119. Paragraph 13 of section 95 of the OSA and subsection 135(o) of the ASA provide that, whereall of a bid's terms and conditions have been complied with or waived, the offeror mustforthwith issue a notice by news release to that effect and disclose in that news release theapproximate number of shares deposited and the approximate number that will be taken up.

120. If all of the Offer's terms and conditions had been complied with or waived, MacDonald Oil'sfailure to file a news release disclosing this fact contravened applicable securities legislation.

121. The Offer Documents provide that, if the terms and conditions of the Offer were not fulfilledor waived prior to the Expiry Time, MacDonald Oil would, at its own expense, promptlyreturn any Bresea Shares deposited under the Offer.

122. If all of the Offer's terms and conditions were not complied with or waived, then MacDonaldOil was obliged under the terms of the Offer to promptly return, at its own expense, thetendered Bresea Shares.

G. OTHER

123. Such additional allegations as counsel may advise and the Commission and the ASC maypermit.

Dated at Toronto and Calgary this 30th day of July, 1999